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How could it be that some unwise mortgage loans made during a time of national prosperity threaten a collapse of the American financial system? There is, of course, plenty of blame to go around. But today I want to highlight the role of social segregation –- segregation both allowed and fostered by our land use laws –- in the financial disaster.

The mainstream media tends to highlight the risky loans “urged” on families who couldn’t afford them, especially because of complicated loan terms that increased payments beyond the borrower’s reach. The whispers of a correlation between subprime loans and members of racial minority groups occasionally pops up in an obnoxiously worded comment on Fox News (see the story here) or in some oddly muted stories about lenders “targeting” minorities (see here). These characterizations fit easily into simple political attacks. But a truth is, at least in some big metro areas, a significant problem (among many others, including the stupidity of lenders and those of bought collaterized mortgage packages) appears to have been that many borrowers were not as careful as they should have been, and that a disproportionate number of these borrowers were members of racial minority groups.

In Prince William County, Virginia, a once-booming exurb of Washington, for example, anecdotes abound about Latino immigrants who apparently failed to comprehend the details of their complicated mortgage loans. Foreclosure notices have arrived at about the same time as the county’s legal efforts to discourage illegal immigrants –- or any Latinos, some critics say –- from staying in the county. Once again, there is plenty of blame to go around, but surely a significant share belongs to the social segregation that continues to plague the nation. Isolated by land use laws and social politics, many borrowers failed to hold the language skills, the healthy skepticism of complicated contracts, and checklist of cautionary restraints that American families traditionally have held. And unfortunately, the fallout from the subprime mortgage crisis may only to make it harder for minority families to get decent loans and to break through the barriers of social segregation.